How many salary bands should we have? Is 2,000 bands for 1,000 employees too many? Is 50 bands for 1,000 people too little? Do we need a band for every level in your level framework? What about every location too?
These are questions we hear commonly when chatting with people leaders about salary bands.
And there isn’t always a ‘right’ answer when it comes to the number of salary bands you have – because ‘right’ is different for every company.
In this article we’ll take a look at the most common approaches to building salary bands, and the pros and cons of each:
- Salary bands for every job position (existing roles only, or future roles too)
- Salary bands grouped by department / job family
- A general set of salary bands for the entire company.
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A salary band for every role
Separate salary bands are created for every job position within a company’s job framework.
The pros to this approach are:
- Fair compensation differs across different roles: the median base salary (50th percentile) for a P3 software engineer in the UK is £63,500 whereas for a P3 account executive it’s £50,100
- Simple hiring decisions: having a salary band for every role makes it super easy for you to hire any employee in any job position at any level and in any location.
And the cons:
But, it does mean that you’re dealing with a lot of salary bands.
This can be a downside because it can make it more complex to create and manage salary bands – which is especially challenging if you have lots of colleagues needing to make use of them e.g. hiring managers, talent acquisition etc.
Some companies start with creating salary bands for only existing job positions to keep things more simple, rather than all possible roles. But, that can leave gaps which are hard to reconcile later on when you’re hiring a role in one of the gaps.
Salary bands grouped by department
Instead of separating by job position, all employees within a department or job family are grouped together e.g. Business Development Representatives, Account Executives, Sales Executives at a similar level are placed together in a salary band as a level within an overall sales salary band group.
Some companies may group their salary bands even more broadly than this e.g. tech roles vs non-tech roles.
The pros of grouping salary bands by department are:
- Clear ownership, with each VP or Head only managing one band group
- Better comparisons because each band has a larger amount of employees – also making it easy to identify any internal pay equity issues
- A future proofed structure for when new roles are hired into existing departments
- Clear alignment to career progression, as competencies and skills typically vary by department.
And the cons:
- In large companies the band structure can become crowded and hard to manage
- Roles may be bundled together which are actually very different in terms of scope and salary (for example a product manager and a product designer), quickly leading to salary band outliers where some employees are overpaid or underpaid.
One company-wide salary band group
All employees are grouped together with bands based solely on level rather than separating job positions, departments, or locations.
We don’t recommend this approach.
Whilst it might seem like a way to keep things simple (especially if you’re an early-stage company with few employees) it actually makes the salary bands very crowded and difficult to use, and so it will quickly become very painful for the people team.
Plus, there’s a huge amount of salary variance across different departments and positions, which means that it’s impossible to compensate everyone fairly if they’re all on the same structure.
Our advice: start with departments, aim towards job positions
Ultimately, the approach that you take to implementing salary bands has to come down to what’s right for your company.
Based on the pros and cons we’ve outlined above and our experience speaking to a host of people teams about their salary bands, our advice is to:
- Start with department-level salary bands. Most companies find that salary bands grouped by department are a good balance initially – keeping the structure fairly simple for the team to manage and use, whilst also ensuring fair and competitive compensation.
- Aim towards job position bands. As companies evolve and improve their compensation approach they should evaluate which job positions should be split out into separate salary bands – because benchmarking data shows that they should be paid differently, and/or because they have different progression frameworks to other roles. The aspirational aim is to have a full set of job position specific salary bands – for ultimate fairness.